Running a family business is a juggling act. The needs of the business to grow and prosper have to be balanced against the needs and expectations of family members. Trying to manage this sensitive position can leave family business leaders grappling with a variety of issues.
The key issues many family businesses face around governance
- How to delineate family and business issues
- Ensuring an effective structure for decision making and communication
- Agreeing on clear strategic business objectives that support agreed family values and aspirations for the business
- Nominating and assessing individuals for appointment to the board
- Board representation from the family managers and passive family shareholders
- The use of external executives and advisory boards in an effectice and ‘safe’ way, such as non-executive directors
- Establishing a clear communication process across branches of the family and through generations
- Plans for the short, medium and long-term, and the risks involved in achieving them
- Ensuring there is a clear business imperative for the introduction of a governance framework.
A family business is about creating a legacy for generations to come. But the ability of family businesses to outperform their non-family counterparts and successfully transfer the business to the next generation is very much dependent on their ability to effectively manage the ‘family component’.
Managing the ‘family component’
The first step is governance – within the family, within the business, and around the interrelation of the two. It’s easy to recognise a family business that has mastered this step – they’re likely to be more nimble, more flexible, more dynamic, and less bureaucratic in their decision making.
Any transition through generations is a likely trigger to address governance issues and anxieties; likewise a birth, death, or marriage within a less mature family business. That is why it’s never too early to address governance issues. It’s probably the only structured way to avoid conflict, which can damage the business and the family irreparably, and ensure there is a legacy for generations to come.
Governance means having consistency in the treatment and management of all involved in the business; establishing policies and processes that seek to protect the family, the business, and all shareholders; and putting in place guidelines around decision making, and who can decide what.
How to balance what is good for the business and good for the family?
Using external advisors can help in understanding the right balance to take when the interlocking nature of the business and family is too strong for a coherent decision. This is also when clear communication is vital, to prevent decisions being made in isolation.
Ensuring appropriate corporate structures are in place to protect the family is also important. And obtaining professional advice on such structures is vital from a legal, commercial, and tax perspective.
Governance is extremely important to all businesses, but family businesses tend to ignore it because they see themselves as non-corporate. But without clear governance, there will be conflict. In order to make sure that the family and the business continue to effectively work together, they have to think about frameworks, and ensure that there are family values and a clear business strategy in place.